Is multichannel retail marketing integration a panacea?

Abstract

Channel integration/centralization understood as joint pricing of multiple channels is touted as the ideal organization to maximize the profitability of multichannel retailers. This study challenges this claim and analytically examines with two two-period models whether multichannel retailers should centralize or decentralize online and offline pricing decisions when vertical channel interactions and consumer reference price effects are considered. We found that under certain conditions (which depend on several factors, including the manufacturer’s advertising strategies over the two periods, the intensity of price competition between channels, and the consumers’ sensitivity to price changes over time), the retailer may find it optimal to centralize or decentralize online and offline pricing decisions. Therefore, our findings support the idea that multichannel retailing integration is not a panacea, especially in a context where complex vertical interactions with manufacturers are taken into account and where consumers compare current market prices to recent past prices at the time of purchase.